How to choose a home improvement loan lender

Home improvement loans can deliver money to your bank account in days, and you’ll pay it back with predictable, fixed monthly payments and without worrying about collateral. With some lenders, you may also be able to pay fewer fees (or none at all) compared to other types of financing.

Still, interest rates on home improvement loans vary widely, from around 6% to 30% or more. That’s because the rate a lender quotes you will be based on a mix of factors, like the amount of money you want to borrow, your income, credit score and how much debt you carry compared to your income.

With a home improvement loan, you’ll most likely be able to borrow less than you would with a home equity loan, so if you have a major improvement project in mind, make sure it will cover your needs. As with any financing option, you’ll also want to make sure that any changes you do fund really will add value to your home and won’t be outweighed by what they cost.

Be sure to shop around, as lenders offer widely varying interest rates and fees. Some also promise to close on loans faster than others. In general, look for the following:

  • Low APR. You’ll need excellent credit to receive the lowest rates.
  • No fees. Some lenders offer home improvement loans with no fees. That means you may be able to avoid prepayment penalties, late https://paydayloanstennessee.com/cities/sevierville/ payment fees and origination fees, a processing charge that’s typically 1% to 8% of your total loan amount. Double-check your payment terms before you commit.
  • Positive reviews. Check online for reviews of lenders that offer personal loans; reputable lenders often have long track records. You’ll find reviews at both ValuePenguin and LendingTree.

Alternative ways to pay for home improvements

Depending on your financial situation, you may be able to find more affordable help elsewhere, like from a local or county housing department. To see what’s available in your state, start with the Department of Housing and Urban Development (HUD) website . Also consider these options:

Budgeting and paying in cash

Especially for smaller projects, it can be smart to save up money to pay for home improvements with cash. You won’t pay any interest or fees. Some banks and credit unions offer special, interest-bearing savings accounts that let you sock away money in a designated fund.

How it compares with a home improvement loan: If you can swing it, paying for a home renovation or repair out of pocket is the cheapest and best way to pay for home improvements. It can take time, though, to save up enough money – and that can mean delaying the work.

Home equity loans or home equity lines of credit (HELOCs)

If you own your home and have built up substantial equity, you may be able to use either a home equity loan or a HELOC to access more funds for a home improvement project than with a home improvement loan.

A home equity loan lets you borrow a lump sum that might be up to 85% of equity you have in your home. It typically comes with a fixed interest rate that’s usually lower than for a personal loan and a longer repayment term (often five to 30 years versus two to seven years for a personal loan.) With a home equity loan, it’s easy to predict what you’ll owe for a home improvement project. However, expect a lender to look closely at both your credit score and your debt-to-income ratio (DTI).

HELOCS operate more like a credit card. Your lender gives you a maximum amount you can draw on over a set period of time (typically 10 years). You then enter into a repayment period, where you pay back the amount you borrowed. HELOCS come with adjustable interest rates, but also lower interest rates than personal loans.